TNF signaling is tightly controlled by both positive and negative regulatory circuits. The zinc finger protein A20 is a potent inhibitor of TNF signaling (Beyaert et al., 2000). The expression of A20 is upregulated upon NF61547;B activation (Opipari et al., 1990), which then promotes the termination of TNF-induced NF61547;B and JNK signaling (Cooper et al., 1996; Eliopoulos et al., 1999; Heyninck et al., 1999; Jaattela et al., 1996; Lee et al., 2000; Opipari et al., 1992; Song et al., 1996). Lack of this A20-dependent negative regulatory circuit leads to prolonged TNF activation, which causes sustained inflammatory responses and cachexia as revealed in mice deficient for A20 (Lee et al., 2000). The mechanism by which A20 inhibits TNF signaling is not well understood. Previous work showed that A20 can function as a dual ubiquitin-modifying enzyme to regulate the stability of RIP. During this process, A20 first removes Lys63-linked ubiquitin chains from RIP using its amino-terminal OTU (ovarian tumor) domain. Subsequently, it assembles Lys48-linked ubiquitin chains on RIP using its carboxy terminal zinc finger domains to promote the proteasomal degradation of RIP (Wertz et al., 2004). Although downregulation of RIP by A20 may contribute to its NF61547;B inhibitory function (Heyninck and Beyaert, 2005), some phenotypes observed in A20 deficient mice can not be explained by the presumed stabilization of RIP in these animals. For example, A20 deficient cells are defective in terminating JNK signaling activity (Lee et al., 2000), whereas RIP knock out cells display normal cytokine-induced JNK activation (Kelliher et al., 1998). Furthermore, A20 mutants lacking ubiquitin-modifying activities due to deletion of either the OTU or a zinc finger domain can still inhibit TNF61537;-induced NF61547;B signaling (Klinkenberg et al., 2001), suggesting that the ubiquitin modifying activities of A20 may be dispensable for its function under certain circumstances. Thus, additional mechanisms may be employed by A20 to downregulate TNF signaling. [unreadable] In this report, we have characterized the subcellular localization of A20 using both confocal microscopy and biochemical fraction approaches. Our data reveal that both endogenously and ectopically expressed A20 is localized to a lysosome-associated membrane compartment in addition to the cytosol. The localization of A20 to this previously unappreciated membrane compartment raises the possibility that A20 may downregulate signaling molecules required for sustained NF61547;BJNK activation by targeting them to the lysosomes for degradation. We demonstrate that A20 is able to recruit TRAF2, a mediator of both TNF-induced JNK and NF61547;B signaling, to this lysosome-associated compartment, resulting in its rapid turnover in the lysosomes.